Nvidia took a giant leap toward becoming the first trillion dollar chip company this week, propelled by the explosive rise of AI.
Nvidia's stock has soared more than 20% after the Santa Clara tech giant reported strong quarterly earnings Wednesday. What really caused a stir was the semiconductor company's outlook which astounded Wall Street analysts and sent Nvidia 's valuation soaring to $960 billion.
Wedbush analyst Daniel Ives, in a note to clients, called it a "jaw-dropping guidance heard around the world."
"We view Nvidia at the core hearts and lungs of the AI revolution given its core chips train and deploy generative AI applications like ChatGPT," he said, referring to the wildly popular AI chatbot introduced by OpenAI just six months ago.
Bernstein Research analyst Stacy Rasgon was also astonished. "In the 15-plus years we have been doing this job we have never seen a guide like the one Nvidia just up," he wrote in a research note.
Nvidia said it expects revenue of about $11 billion in its current quarter, well above the $7 billion Wall Street analysts were projecting.
Nvidia also posted strong results last quarter. During a call with analysts, Nvidia founder and CEO Jensen Huang said the company was seeing an "accumulation of technology breakthroughs" which has "brought AI to an inflection point."
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On Wednesday, Huang reaffirmed how the AI frenzy has led to stronger demand for more robust data centers that can handle the intense computing needs of artificial intelligence programs. A key requirement in this push are more powerful chips.
Nvidia, which is famous for making high-powered chips used in gaming and Hollywood blockbusters, has quickly dominated this market.
"A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process," Huang said in a statement.
Rasgon said Nvidia's projections suggest "a massive surge in generative AI demand."
"Tactically the only question that really matters is whether the new datacenter trajectory represents a new normal run-rate or a surge on the back of generative AI hype," he added. "However, at least in the near to medium it does appear to be sustaining, at least through the year."
Ives suggested that unlike recent tech trends that have somewhat fizzled, such as crypto and the metaverse, AI will likely spur strong growth in the tech industry.
"For any investor calling this an AI bubble (crypto, metaverse, now AI bubble thesis) we would point them to this Nvidia quarter and especially guidance which cements our bullish thesis around AI and speaks to the 4th Industrial Revolution now on the doorstep with AI," Ives said in his note to clients.